Distributed solar power production is under fire. In nearly 1 of 3 states, utility companies are trying to undermine policies that make it economical to produce energy from a solar panel instead of buying it from a utility.

In nearly every case, the utility offensive is aimed a single policy: net metering. This policy mixes interconnection rules (a technical and administrative set of requirements for connecting to the grid), with economics of billing (net energy metering). Net metering policies typically make it much easier to connect a solar array to the electric grid.

Why Net Metering Matters

The most important piece of net metering is the billing policy that simply compensates solar owners for their energy generation. It spins the meter backward during the day when there is excess solar generation, for example, and forward at night when household energy consumption is higher than solar production. It treats on-site renewable energy production like any other method for reducing energy consumption, by having customers pay for their “net” energy usage (total use less on-site production) on their electricity bill. The following video 101 explains:

Net metering may also reduce extraneous utility charges for “backup” or “standby” power, since such services are typically already covered by a utility’s existing energy reserves.

Without net metering, you’d probably need a battery along with your solar panel. Otherwise, most of your awesome solar energy would be sold to the utility for peanuts while you’re at work. So it’s not the same as being self-reliant. It’s an accounting measure, letting the customer swap their solar electrons for some from the utility, but still pretend that they’re offsetting their own energy use. Real self-reliance (or grid independence) would require a battery, to store surplus solar energy for use at another time.

It may differ from self-reliance, but net metering has been a great investment for ratepayers. When retail electricity prices were low, solar producers were giving valuable peak energy to utilities (and their neighbors) at a substantial discount to its value (see: Minnesota’s Value of Solar). Non-solar customers (e.g. most utility ratepayers) got a good deal. It juiced up thousands of local jobs while driving down the cost of solar like mad. And it’s responsible for a helluva lot of the 13 gigawatts of solar energy powering U.S. homes and businesses in 2014.

What’s Different about Value of Solar or a Feed-In Tariff

The basic idea behind these other policies is to maintain the growth in distributed solar power, but to make it even easier to go solar. In Minnesota’s value of solar policy (and in similar “feed-in tariff” programs in Vermont, Germany, Gainesville, etc) customers don’t spin their meter backward, they sign a 20-year (or more) contract to sell their power to the utility at a fixed price.

That contract can make financing and owning solar a lot easier, because a contract like that is much more attractive to a bank than saying, “I should be able to save a lot of money on my electric bill as long as the utility (or legislature) doesn’t change net metering and as long as utility rates continue to rise.” Net metering has been a pretty safe bet, but a contract is a safer one for a risk-averse financier.

Why Does Policy Matter?

Right now, the differences in policy are pretty small because the spread is pretty small between the (per kilowatt-hour) cost of solar electricity, the value of solar to the utility/ratepayers, and the retail energy price. It means that, taxpayer-funded incentives aside, there’s very little transfer of benefits between solar producers and non-solar customers, and the profits in going solar are relatively small. (Note: the spread varies by region and utility service territory).

But that’s going to change in a big way. In the next five years, the cost of grid electricity is likely to keep rising, the value of solar will remain relatively steady, and the cost of solar will continue falling. In that scenario, under net metering, a solar producer gets compensated for solar electricity at a price that’s much higher than its cost to produce and that exceeds its value to the rest of the utility customers. (Note: the time of arrival of this scenario varies by region and utility service territory).

The Big Question

So TASC’s solar leasing companies need to answer this question: what’s the appropriate price premium for solar energy? How much more than what solar is worth should non-solar ratepayers have to pay? A penny per kilowatt-hour? 3¢? 5¢? 10¢?

The following slideshow illustrates the forthcoming challenge:

Decisions about solar policy change shouldn’t be made rashly, and net metering shouldn’t be discarded simply because an alternative exists and until it’s causing a problem. But we have an option — the value of solar — that, if implemented properly, prevents oversized payments for solar electricity with a fair and transparent price for solar energy.

If we aren’t going to change net metering, then we’d better have a good answer. Otherwise it won’t be long before the skies darken on popular support for a rooftop solar revolution.

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10 Comments

The solar winds of change are a welcome relief from dependency! OFF the GRID, back to original American's INDEPENDENCE!

but for how long til the billionaires get hungry?
What will the greedy few do to keep their billions flowing through us back to their ivory towers?
If we don't pay them, will they disappear (go to another planet) and leave us alone?

Remember when television was free? Now that we are all hooked, we have to pay to be brainwashed. Same thing is going on with utilities. Just how can we live without them? This is the premise they are banking on. When solar PV came on the scene, individuals who could afford it installed systems to get away from the grid. Now the focus is on tying into the grid. Who do you think came up with this idea?
Once you tie in, you agree to their terms and conditions which can change overnight. The only way to stop this is to become independent and gain free energy for yourself, just like you used to get free television broadcast right out of the air.
If more people decide to become independent and purchase systems that can do this, more manufacturers will produce compliant products and prices will drop. But for now they are focusing on grid tied systems and getting in bed with the utilites while pushing their bed buddies ideals. This promotes all the laws and obligations which have been issues ever since and will no doubtably get worse. Again compare that to your television, higher cable prices every year, less service and more intrusive systems and contracts written in pencil.

The "energy squatter" problem must be addressed at some point. By energy squatter I mean the problem that grid maintenance may not be an issue at the present market saturation of solar but will inevitably be an issue for the rooftop market in the near future. The "value of solar" is debatable as solar saturation increases over time and produces a kind of breathing effect between the distribution and transmission grids - example: sun comes out in a highly saturated distribution grid and produces surplus that must be dumped onto transmission grid then thunderstorm comes and energy flows from transmission to distribution (this is a very simplified scenario).

More importantly, we must also consider other trends outside of this very small nitch market (rooftop) as the present RPS penetration strategy for solar is - in my opinion - quickly approaching a context where it will become more and more obsolete due to its assumption that utilities will not internalize DER (e.g., solar securitization ensures that solar internalization will not effect IOU credit rating). First, a 2012 study by the NREL found that only 22% to 27% of residential rooftop area is suitable for hosting an on-site PV system. This may be supplemented by targeting larger roofs but economies of scale are always lingering around the corner. This brings me to my second point, as in other high-tech industries, the cost of solar technology is a function of the scale of its deployment. The solar industry has experienced and will continue to experience a steady decline in PV prices due to the increased benefits of economies of scale. While rooftop solar remains popular within the most advanced solar markets, there are large differences in hard and soft costs between traditional rooftop and utility-scale solar. Inefficiencies associated with rooftop solar include higher installation costs, higher O&M expenses, shorter inverter lifespan, and permit fees. For example, the DOE “Sunshot Vision Study” maintains that a residential solar system requires $32.8/kW/yr in O&M costs whereas a utility-scale system only requires $19.93/kW/yr. In a 2011 article featured on the Scientific American’s website, DOE NREL data on the average cost per solar watt between the years 1980 and 2009 was demonstrated to follow an almost straight line on a logistic scale, implying that the cost of solar PV falls exponentially with deployment, which suggests there may be a “Moore’s law for solar." When interviewed by our research team, SEPA Senior Research Associate Bart Krishnamoorthy stated that “it is typically cheaper to install a 1 MW ground mounted over one-hundred 10 kW rooftop systems because of soft costs and labor costs. Rather than interconnecting one hundred systems, which takes additional time, money and permits, a 1 MW system would be a better value proposition. The price of modules also typically goes down through large purchase orders as well; this also includes other components such as inverters and racking supplies." These economies of scale are well represented by the discrepancies between residential and utility-scale solar prices - $4.93/Watt and $2.27/Watt, respectively, and over the past three years the cost decline has been greater for utility installations than it has for distributed installations.

In the end, glad to see this topic being brought up... I would argue that working with as opposed to against the utilities would be more productive. Take for instance, what we are doing here in coal country... Developing a Virtual Power Plant strategy that provide IOU's the alternative business models that was suggested by the, by now famous, Edison Electric Institute's "Disruptive Challenges" report. On a deeper level, we really got to learn to trust some of these institutions instead of evoking age old "marxist" rhetoric that IOU's are simply maximizing their bottom line. And I digress...

The purpose of a feed-in tariff is to provide enough incentive over 15+ year period to a solar developer/owner to earn a reasonable rate of return on the investment and to acquire affordable financing to make the investment happen. A properly set feed-in tariff price will recognize the subsidy needed during the front-end portion of the contract to produce the reasonable rate of return. Feed-in tariff rates need to remain flexible such that new contracts account for the separation between the cost of solar (including the requisite rate of return) and the retail rate for electricity at the time of concluding a contract. The value of solar to the utility is dependent on those inputs that escalate the retail price of electricity in the marketplace. Slide #2 is misleading in that it shows a snapshot of a feed-in tariff entered into 2008 and extending to 2030 with the conclusion that the compensation for electricity under net-metering is in significant excess to the "value" of solar as calculated in 2008. In fact, the market value of solar will escalate upward in tracking the retail price of electricity based on increasing fuel costs and necessary capital investment to expand/upgrade transmission and distribution systems.

If the savings ae as good as they sound the utility 'monopolies' should be better off in the long run. I don't currently know that many people who can afford 2-1/2 acres worth plus batteries to be able to 'punt' on the grid. Smart metering should probably be treated like rent on batteries....lol...lmao
Passive nuclear fusion (free from GOD)...

ANONYMOUS
April 16, 2014

Private utilities are an anachronism, they should all be cooperatively owned and decisions based on what's best for the environment and then the customer/owner.

ANONYMOUS
April 16, 2014

We're "still not getting it"....if we don't change from "McMansions" and "huge lifestyles in the United States"....we're gonna be getting a lot of humans coming inland soon, due to flooding in the next hundred years. Let's look at the extreme and "coming picture." The coal and power industries are worried about 'keeping their' monopolies....right? Right?

We should be worried about "keeping our WORLD." As a collective world....obviously we're not worried enough YET....because we're only "bruised now" environmentally. Once our "entrails" are dragging on the ground....nothing in WallStreet, or in Big business or Big Agri will matter. We'll all be chasing our tails around like it's a "World War". This is how the human animal functions.....personally (not to sound psychotic), the world left to it's own
collective function, would be much better collectively without mankind. This is obviously undisputeable. We better start to return to our "roots" as animals and take as little as is necessary to live free and healthy soon...or "none of this conjecture will amount to a 'hill of beans.'"

The energy status quo is changing! Utilities have always had many advantages as conventional power was the only game in town and society has subsidized them to promote a healthy economy etc. We have turned a blind eye on the pollution/non-renewable effects of conventional fuel energy sources as there was no other way. Now however, with solar and wind becoming competitive - it threatens the standard order. Why put up with the negative aspects of dirty fuels when an alternative is available? Net metering has been a vital incentive for renewable but intermittent energy sources and utilities have every right to complain, but to be fair - this puts their incentives on the chopping block as well. I'd be glad to pay the true cost of grid interaction, if they were willing to pay the true costs of dirty fuels.

Solar is not going to suffer too much from policy changes around NEM. Everyone can offset the retail value of electricity by adding batteries that store the power for night time use. The kwh cost for a system using batteries is 15 cents/kwh, when the system is owned for 30 years, and lower the longer one owns such a system. Locking in the price you pay per kwh for the next 30 years is very attractive in a climate of rising energy prices and reduced compensation for energy returned to the grid. If NEM rates are lower than retail, people will add batteries to realize the retail rate by offsetting use of grid power. So a solar system can always provide a kwh equal to the retail rate it offsets. If utilities insist on lowering compensation at the retail rate , they will be promoting their own demise through grid defection. It's the utilities choice.

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John Farrell directs the Energy Self-Reliant States and Communities program at ILSR and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. His latest paper,...